The Fracturing of Chevron Deference

Yet another blow to the Obama administration’s environmental policies was delivered by a Wyoming federal district court, which struck down the U.S. Bureau of Land Management’s (BLM) rule regulating hydraulic fracturing on federal and Indian lands on June 21. State of Wyoming, v. U.S.Department Of The Interior, 15 -00041. The decision signals a continued decline in the deference given to agencies under Chevron v. NRDC, 467 U.S. 837 (1984).

Hydraulic fracturing, or “fracking,” involves the injection of water, sand and chemicals into a well to break up dense rock and release oil and gas. As the development of previously untapped oil and gas has grown in recent years, so too has litigation over the environmental effects of the practice.

BLM published its final rule on Hydraulic Fracturing on Federal and Indian Lands in March 2015. The rule, which applies only to oil and gas drilling on federal and Indian lands, mandates public disclosure of injected chemicals, stricter storage protocols for recovered wastewater and construction standards for wells.

While BLM viewed the rule as an overdue update to existing oil and gas drilling regulations, which have remained largely unchanged since their enactment in 1988, industry groups and Western states considered the rule to be an unprecedented encroachment on state and tribal sovereignty.

In two consolidated cases filed in March 2015, the states of Colorado, North Dakota, Utah and Wyoming, the Ute Indian tribe, the Western Energy Alliance and the Independent Petroleum Association of America challenged the rule.

Chevron Deference and the Court’s Decision

For decades, courts asked to set aside final agency action “in excess of statutory jurisdiction” under the Administrative Procedure Act, 5 U.S.C. Section 706(2)(C), have followed Chevron, which defines the extent of courts’ deference to executive branch rule-making. The first step of the Chevron analysis requires the court to determine whether Congress has “directly spoken to the precise question at issue.” If the statute is silent or ambiguous with respect to the specific issue, the court proceeds to step two to determine whether the agency’s answer is based on a permissible construction of the statute. If so, a court must defer to the agency.

BLM argued that the rule was an appropriate exercise of its broad authority under several federal statutes, none of which specifically address fracking. BLM’s argument primarily relied on two statutes: the Mineral Leasing Act of 1920 (MLA), which delegated broad authority to regulate the development of oil and gas resources on public lands, and the Federal Land Policy and Management Act of 1976 (FLPMA), which authorized BLM to prevent unnecessary or undue degradation of public lands under its management.

The court reviewed each statute cited by BLM and ultimately determined that none granted BLM authority to regulate fracking. In the court’s view, the general authority granted to BLM must be interpreted in light of congressional enactments relating to the U.S. Environmental Protection Agency’s authority to regulate fracking under the Safe Drinking Water Act of 1974 (SDWA)—a law that applied to private and public land.

Under the SDWA, Congress directed the EPA to develop an underground injection control program “to prevent underground injection which endangers drinking water sources.” 42 U.S.C. Section 300h(b)(1). The EPA maintained for many years that fracking did not fall within the statute. In 1997, the 11th U.S. Circuit Court of Appeals held that the SDWA’s definition of underground injection encompassed fracking and therefore EPA was required to regulate it. Legal Envt’l Assistance Found. Inc. v. EPA, 118 F.3d 1467 (11th Cir. 1997). The 11th Circuit’s decision was legislatively overruled by the Energy Policy Act of 2005 (EP Act), which amended the SDWA to exclude fracking from the scope of the statute in an effort to promote domestic oil and gas development. 42 U.S.C. Section 300h(d)(1)(B)(ii).

Applying Chevron step one, the Wyoming court found that, with the EP Act, Congress spoke directly to the issue of whether BLM was authorized to regulate fracking: “If agency regulation is prohibited by a statute specifically directed at a particular activity, it cannot be reasonably concluded that Congress intended regulation of the same activity would be authorized under a more general statute administered by a different agency.” The court therefore held that the rule attempted an “end-run around” the EP Act.

Implications of the Decision

The court’s holding that Congress unambiguously reserved fracking from its otherwise broad delegation to BLM of authority to manage public lands—even though it has never directly spoken to BLM’s authority to regulate fracking on public lands—represents a significant deviation from Chevron step one, as most courts have applied it. Because Congress barred one agency from regulating a particular activity under one statute, the logic goes, Congress clearly intended to bar any regulation of that activity by any agency. That result appears to be unprecedented.

The Department of the Interior and numerous environmental groups have already filed a notice of intent to appeal the decision to the 10th U.S. Circuit Court of Appeals.

The 10th Circuit may reframe the Wyoming court’s decision under Chevron step two, finding that the rule was an impermissible interpretation of ambiguous statutory authorities. Such a result would further weaken the Chevron doctrine and encourage future challenges of agency action, but leave intact the basic Chevron framework.

If, however, the 10th Circuit upholds the district court’s ruling at Chevron step one and agrees that Congress’s prohibiting EPA from regulating fracking on private lands expressed an unambiguous intention to bar BLM from regulating fracking on public lands, there will be little left of the once-hallowed Chevron deference doctrine. Such a ruling will not only make it easier for opponents of new rules to strike them down, it will likely incentivize a continued proliferation of legislative riders and amendments designed to facilitate such outcomes.

Julia R. Graeser is an associate at Barg Coffin Lewis & Trapp, LLP, a San Francisco-based law firm providing nationally recognized expertise in environmental law and litigation. You can reach her at jgraeser@bargcoffin.com.